How Cooperative Are Co-op Databases?
By Hallie Mummert
Industry experts get into the pros and cons of this prospecting and analytics tool
On the surface, participation in a cooperative database sounds like an absolute no-brainer. Merging your customer data with that of other direct marketers to develop more robust models that enable you to prospect more effectively than you could with only your own data to go on—what could be more intuitive?
Scratch a little deeper, though, and you begin to realize that this sweet-smelling rose also can have thorns. Depending on how a cooperative database is governed, list managers and list owners cite risks such as unfair competition, the inability to withdraw their data from the co-op in the future, and a lack of insight into what's driving the performance of co-op names.
On the flip side of this co-op coin is the immense analytical insight offered by many of the co-ops. More than a few list owners find benefit in being able to access competitors' lists in a blind environment (where name source is not identified). As Stacey Hawes, vice president of B-to-B services at Abacus, a direct marketing data and services provider in Broomfield, Colo., noted in a panel session at DMA•05—How to Use B-to-B Co-op Databases to Boost Growth—some lists are available for modeling via a co-op that aren't placed on the open market for rental because the source is kept private. Abacus offers private co-op databases for both the B-to-C and B-to-B sectors.
The upshot is that each direct marketer must assess the associated benefits and risks of co-op database participation. Discussions with several list professionals who play various roles in the list analysis and procurement process resulted in the following set of questions to ask when you're considering how to best work with co-ops. Use them as a framework on which to build your knowledge of how each cooperative works, which in turn will help the managers of these data tools better direct their efforts to meet your business goals.
Question No. 1: Can You Control Competitors' Access to Your Names?
The main benefit for any list owner who participates in a cooperative database, says Linda Santaite, senior sales executive at Mokrynksidirect, a full-service direct response marketing company in Hackensack, N.J., is the modeling that can be done with such a wide variety of data. But the assumption is that other mailers in the cooperative will be modeling, too. From a list management point of view, she says, it's troubling when a co-op allows companies that don't participate in the database to rent names from the co-op, especially if the list owner feels it could have gotten a better list rental price outside of the co-op environment.
Chris Pickering, vice president of database marketing at MeritDirect, a list services firm in White Plains, N.Y., agrees that it's not a bad idea for co-op participants to limit and block usage by direct competitors to protect their interests. But when it comes to indirect competitors, Pickering, who also spoke on the DMA•05 session panel, advises list owners not to limit rental access for these requests, since they might not get this rental revenue any other way. Instead, he explains, set a higher rate for these rentals than for those offered to other co-op members. MeritDirect offers b2bBase, an open business cooperative database in conjunction with Experian.
While Direct Media, a full-service list firm in Greenwich, Conn., doesn't require direct marketers to participate in its DataWarehouse, a B-to-B co-op, in order to rent names from it, the company does encourage mailers to join to get the maximum value from the database, says Michael Tuohy, vice president at Direct Media and also a DMA•05 co-op session panel member. To provide its participating members with control, Tuohy explains that Direct Media clears rental proposals with each one of its more than 1,200 base members.
Hawes reports that Abacus typically finds new co-op participants interested in blocking usage by other members. Then, as they conduct more model testing, participants see the value of building the models on as much data as possible, which tends to loosen their restrictions so they can get more data themselves.
Where it gets a little more tricky is in the exact parameters that are set up on modeling and list creation among co-op members. For example, Santaite points out that multichannel marketing can blur the lines on what names are considered to be of equal value. If a company that's already participating in the co-op wants to start an online pet supplies business, can it get access to a pet catalog's customer names?
Phil Wiland, chairman and founder of Longmont, Colo.-based Wiland Direct, a firm that offers a closed cooperative database for catalogers, expands this issue to retail vs. catalog names. "Is it fair to catalogers," he asks, "to rent their names to retailers when the retail channel takes away from catalog sales?"
The cardinal rule of cooperative databases, Wiland adds, is that limits are placed on the number of names that can be used for modeling and rental based on the number of names a member contributes to the co-op. Typically, each member is given a multiple based on its contribution level and a timeframe in which that multiple can be pulled.
"In my opinion, that protected the larger mailer from having its file used in huge volume by small competitors who really didn't have enough names to provide value commensurate to a large mailer," says Wiland.
The most extreme example of this point is that of a start-up company wanting to join a co-op, he explains. It would have very few names to submit in the beginning, so participating would allow it to build its business more easily on the backs of the other members. Along the same lines, Wiland cautions co-op members to find out their co-op firms' rules on existing members launching new products/titles with names from the co-op.
Recognizing that these issues are important to direct marketers, co-ops are working to address concerns about competition.
Rick Witsell, vice president, marketing at Alliant Cooperative Data Solutions, a cooperative data analytics firm in Brewster, N.Y., notes his firm's policy is that it won't create a data variable for use in the database or models unless at least three companies contribute that information, that way no one company is supplying other users with unique data. And, he adds, no contributor gives more than 50 percent of the data for any element in the base.
Save for the open co-op it runs with MeritDirect, Experian manages several B-to-C co-ops that are private. Even when it comes to b2bBase, Nicole Bartholomew, product manager, cooperative databases at Experian, a direct marketing data and services provider, with headquarters in Schaumburg, Ill., pointed out during the DMA•05 session that base participants are not allowed to specify which companies' data they want to use for analytics; selection is done by data category alone.
Bottom line: Before you sign on the dotted line, spell out your competitive usage limitations in clear terms.
Question No. 2: How Easily Can You Change Your Participation Status?
Another question to answer is that of data ownership: What happens to your data if you decide to withdraw from the co-op? Santaite has seen marketers listed as database participants, even when they haven't contributed customer records for years. Her main concern is that clients' data is never fully withdrawn from the database because the models have been built with this information.
Witsell explains that any models being created by co-ops should be so robust that their performance is not impacted if some contributors pull out of the base.
At Abacus, says Hawes, "If a member decides to cease participation, their data remains on the database but is inactive and is not included in other participants' models." She adds that Abacus can purge that member's data from its database, at the member's request.
At the heart of this issue, says Wiland, is that the data is always the client's and not the co-op's. What the co-op retains full control of is its model-building technology and software, which plays a big part in the value of one co-op to the next.
Question No. 3: Will the Cooperative Firm Share Insights on the Analytical Results?
Given that the main goal of co-op members is to drive their prospecting—and even retention—to more profitable heights via the deeper analysis afforded by more robust models, it makes sense that participants would want to be privy to some of the insights such analytics afford.
Wiland and other industry pros call this the "black box" of co-ops, meaning that participants don't always know what elements went into the model. To truly help marketers improve their direct marketing practices and grow their customer file, it's important to at least know what factors are driving names to the top of the model, says Wiland. And, he adds, for marketers to have an understanding of any given model's likelihood of performance. Marketers should be able to assess the testing risk as best possible.
As in any joint venture, full cooperation between all partners is crucial to success. Witsell notes that the best scenario is for the co-op to work with the member's list manager and broker so that this part of the prospecting and retention strategy can be integrated and leveraged into the marketer's overall business goals. Look at the marketer's old test results to see how cooperative data could provide more insight on how to better use all list resources available on the market, he says.
To Know for Sure …
If you're still on the fence as to whether joining a co-op will pay, assess it the direct marketing way: Test.
David Waldman, CEO of Eclipse Direct Marketing, a list brokerage and media buying firm, with headquarters in New York City, and a list expert who has guided numerous clients through the cooperative and private prospecting database waters, advises any gun-shy mailer to test a portion of its housefile. While those names are in the cooperative database, scrutinize the offers brought to you by the co-op to see that they are of similar quality to what you are clearing for the names not in the cooperative. Then, he says, track performance for each list group. This way, you should get a sense of whether being in the co-op caused any performance issues for your own offers or those of third-party mailers who rent your names.